The best of decades, worst of decades

It has been the best of decades, the worst of decades. In the 2000s, India became an economic growth champion (especially in services), and was recognized as a potential super-power through admission to the world’s nuclear club. But the same decade witnessed gross misgovernance, rising terrorism and Maoist insurrection, and outrageously high rates of malnutrition and anaemia.

In 2000, India was just recovering from the Asian financial crisis, but was then hit by the 2001 recession and worst drought of the century in 2002. Agricultural growth fell below population growth. Foreign investors flocked to China but not India, which was seen as a manufacturing failure. Indian industrialists were dead scared of Chinese competition.

Astonishingly, this sombre beginning was followed by miraculous economic acceleration. India averaged almost 9% GDP growth in the five years 2004-09, with agriculture averaging over 4% annually, the highest rate ever. Even the poorest states—Bihar, Uttar Pradesh, and Orissa— accelerated. Infrastructure and private educational and health institutions expanded faster than ever before. India then survived the Great Recession of 2008-09 with only minimal deceleration, and now expects 7.5-8.0% in 2009-10. This excellent performance explains why it is seen as a coming superpower.

In the 2000s, business and knowledge process outsourcing followed the lead of computer software to become globally competitive. India proved that its main advantage lay not in cheap labour but cheap skills. Professor Vivek Wadhwa said Indian companies “have climbed the value chain to become outsourced providers of critical R&D in sophisticated areas such as semiconductor design, aerospace, automotive, network equipment and medical devices.This is happening as multi-nationals set up their own R&D operations in India and partner with local shops. Both the Palm Pre smart phone and the Amazon Kindle, two of the hottest consumer electronics devices on the market, have key components designed in India. Intel designed its six-core Xeon processor in India. IBM has over 100,000 employees in India. A large number of these are building Big Blue’s most sophisticated software products. Cisco is developing cutting edge networking technologies for futuristic “intelligent cities” in Bangalore. Adobe, Cadence, Oracle, Microsoft and most of the large software companies are developing mainstream products in India”.

Cheap skills enabled Tata Motors to produce the Nano, the cheapest car in the world. Bharat Forge is set to become the biggest auto forgings company in the world. Reliance has created the largest oil refinery complex in the world at Jamnagar.

Instead of being swallowed by MNCs, Indian went on a global acquisition spree. Tata Steel acquired several foreign plants including Corus, and now gets 65% of its revenue from global operations. Every top pharma company has become a multinational. Economist Arvind Subramanian says India has beaten China in terms of overseas investment as a percentage of GDP.

However, better economic performance has been accompanied by worse political management. The Gujarat killings of 2002 badly dented India’s claims to secularism, as did the killings of Christians in Orissa. In 2001 we said proudly that India had over 150 million Muslims but no Al Qaeda. Alas, India has now developed home-grown Muslims terrorists exploding bombs in several cities, with impunity. Indian extremists have retaliated with their own bombings in Malegaon.

The government has hardly a clue about the perpetrators. Its anti-terrorist efforts look pathetic. It looks equally clueless to deal with rising Maoist attacks in 167 of the country’s 600 districts. Some silver linings: Kashmir is much quieter, Andhra Pradesh has largely ended Maoism, and the ULFA chief has been arrested in Assam.

Government service delivery remains terrible. Absenteeism of teachers and other staff remains scandalous, with no sign of political will to discipline the culprits. Political corruption is mind-boggling; politicians have found they can make more money out of a liberalized, dynamic private sector than they could in the old days out of inefficient public sector monopolies.

Will worsening governance make improving economic performance unsustainable? Maybe, but I am an optimist. This is because in some ways governance has actually improved enormously. Consider the computerization of rail and air bookings, banking, court cases, land records, tax returns and much else. Consider the rise of NGO watchdogs and the right to Information.

The end of industrial and most import licensing has ended corruption in those areas. The end of price controls has ended blackmarketing. Low import duties have killed smuggling. The black market in foreign currency has disappeared.

So, economic reform itself has improved governance in a hundred ways. I believe this explains why economic growth has accelerated despite terrible misgovernance in some areas. For this reason, we can view the next decade with optimism.